A U.S. federal judge in New York, last month, refused to delay the approval process for a controversial $20 million settlement between Bank of America Corp. directors and shareholders who accused the bank of overpaying for Merrill Lynch & Co. U.S. District Judge Kevin Castel rejected as premature a request by another shareholder group, pursuing a similar lawsuit against Bank of America directors, to intervene in the New York case. The second group of shareholders, who have filed suit in the Delaware Chancery Court, contend that the amount of the New York settlement is inadequate and could destroy their claims.
Bank of America agreed to buy Merrill on Sept. 15, 2008, at the height of the financial crisis. Merrill’s losses were a factor in the bank being forced to obtain a second federal bailout, and contributed to a 93% drop in its share price over six months. The takeover closed in January 2009. The second shareholder group contends that the New York settlement was the result of a “collusive scheme” between directors trying to avoid a “big payout” and the lawyers representing the shareholders. They also said the settlement amount is far too low considering the damages suffered and the fact that $500 million of insurance coverage is available to protect the directors. But Judge Castel ruled:
Such arguments are best raised in the settlement approval process. At this point the parties here have executed only a memorandum of understanding…. A review of the merits of any settlement is premature.
The New York settlement, if approved, would resolve claims that Bank of America directors breached their duties for having misled shareholders about Merrill’s soaring losses and hidden how Merrill was paying $3.6 billion of bonuses despite those losses. Among the Defendants is Kenneth Lewis, the onetime Bank of America chief executive who engineered the takeover.
In early May, Delaware Chancellor Leo Strine put the case before him on hold, as he denied a request by shareholders in that case to block Judge Castel from reviewing the settlement. Judge Castel also oversees nationwide shareholder litigation against Bank of America over the Merrill purchase. Reportedly, damages in that litigation could be much larger.
Lead Plaintiffs in the New York case are the Hollywood Police Officers’ Retirement System in Florida, and the Louisiana Municipal Police Employees Retirement System. Both cases are derivative lawsuits brought on behalf of Bank of America. Payouts under the settlement would go to the bank, not to shareholders. The cases are: Bank of America Corp Stockholder Derivative Litigation, Delaware Chancery Court, No. CA4307; and In re: Bank of America Corp Securities, Derivative, and Employee Retirement Income Security Act (ERISA) Litigation, U.S. District Court, Southern District of New York, No. 09-md-02058.
Source: Insurance Journal
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